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Leaving cash on deposit is safe, but hardly sound

Alan SteelI came across some research by Blackrock, the world’s biggest investment house. It studied the savings tactics of folks in 20 European countries including Scotland and its findings are a bit surprising given the general feeling that Scots these days don’t bother with saving. Well, there’s good news and bad news.

Let’s start with the good news. It appears we’re more prepared to save for retirement than the average European, and are more action orientated about teaching our kids the value of money, with 40% more of us opening savings accounts for them as well as giving them pocket money.

So, what’s the bad news? Despite our savings habit, saving more than the average European, we’re worried we won’t achieve the retirement we’d prefer. How come?

Well, for some reason, too many of us cannot see beyond cash deposits . On average we have twice as much there than we think we should have…65% versus 34%.  And yet despite this, over half of us intend to increase what’s in deposit, ignoring the dire returns enjoyed (contradiction in terms there). Apparently, 2 in 5 of us think deposits are safe, and another load of us think deposits do not lose their value. Oh dear.

Given the amount of safe savings it’s hardly surprising that while, in theory, Scots are more conscientious than typical Europeans about retirement planning, current figures show we underestimate how much of a pot we’ll need by 40%.

Only 1 in 6 of us bothers with a financial adviser to help us, though other research shows most are still confused as to whether advisers are independent or not. What a mess.

I suggest we all learn the Rule Of 72 before we keep blindly stumbling into unhappy retirements. It’s not difficult. Just divide your net return per annum into 72 and it tells you how many years it’ll take to double your money.  1% ? That’s 72 years. Only 0.1% ? 720 years! Best of luck.

Twenty five years ago Neil Woodford was appointed manager of Invesco Perpetual High Income Unit trust. It was designed to be ideal for long term savers who fancied better returns than simple deposits.

Neil left last year but his deputy took over. Over those 25 years patient investors, including a good few Scots, have done rather well . Over 14% pa. Divide that into 72. Doubled their money every 5 years or so. Not bad, eh? Do you know what that is over 25 years? Up 1982% . Mind you, prices can go up as well as down.

Flash in the pan? You decide. Such funds have been successes since the mid 1950s. And the good news is there’s a bigger selection to choose from these days. So maybe it’s time to join the 16% who have an adviser, and are more likely to be diversified in their investments with far less sitting wasting away in deposits earning the square root of…not a lot.

Alan Steel is founder and chairman of Alan Steel Investments

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